Barclays predict lower growth for 2009

September 24, 2008

Since the beginning of the year, the focus of policymakers and financial markets alike have shifted significantly from the ongoing credit concerns to the surge in inflation that now presents a growing risk to global growth. Across most regions, there have been upward revisions to inflation forecasts, triggered by an unprecedented rise in commodity prices.
These rises in the past few quarters have been much larger than earlier increases and price rises across energy, seeds and base metals alone over the past 12 months amount to something like 5% of global GDP.
While for some sectors, such as manufacturing and energy, the impact of increased raw-material costs is more immediate, the T&T sector may not see effects for several months, or even after a year or more. Reflecting the broad nature of the sector, inflationary and general economic pressures will also affect T&T players in varying degrees - areas such as Telecoms for example, with notable competitive pressure, may find it extremely difficult to pass on increased costs of powering base stations to the consumer. However in other fields, such as IT Services, any negative effects may be offset by an increased demand from organisations looking to reduce costs, and innovations in process transformation.
Looking across the universe of UK listed Tech stocks, results have so far been relatively positive, and our own Barclays T&T Index has shown Tech stocks generally outperforming the FTSE 100 since Q2. However at the half-year mark valuations still remain well below those at the beginning of 2008. While this has been positive for some with cash reserves or other facilities available for acquisitions, tighter liquidity has made many more management teams consider taking their companies off the market. This is combined with a prolonged period of drought for Technology IPOs in the UK, a situation that won’t be helped by a disappointing float for Rackspace in the US in August. The net effect therefore has been a dwindling number of listed UK Technology companies over the course of the year, a trend that unfortunately we don’t see reversing any time soon.
With inflation unlikely to return to target levels in the medium-term, what is certain is that the Technology sector should brace for lower growth in 2009 than perhaps accustomed to. Whilst organisations able to deliver genuine cost and process efficiencies for customers may be more defensive than others, cost control and innovation both inside and outside the organisation will be even more important for growth in the coming quarters.

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